Trading risk management: the rules that protect your account

Risk a small, fixed percentage

Many traders risk between 0.5% and 2% of their balance per trade. It is not a magic rule, but it has a mathematical reason: at 1% risk, ten losses in a row cut your account by about 9.6%. At 5% risk, those same ten losses leave you about 40% down.

Remember too that losses are asymmetric: after losing 40% you need to gain 66.7% to get back to where you started.

Think in R multiples

Call R what you risk on a trade. Losing your stop is −1R; winning twice what you risked is +2R. Measuring in R lets you compare trades of different sizes and understand your performance independent of balance.

Set daily and weekly limits

Decide in advance how much you are willing to lose in a day (for example 3R or 3% of the account) and stop trading when you reach it. The worst decisions are usually made right after a losing streak, when trying to win it back.

Watch out for correlation

Opening EUR/USD and GBP/USD in the same direction is not two independent trades: they often move together. If you risk 1% on each, you are effectively risking close to 2% on a single idea (the dollar’s strength or weakness).

Always use a stop loss

A trade with no stop has undefined risk. Even if you use mental stops, discipline fails exactly when it is needed most. Place the stop in the market and respect it.

A plan before every trade

Before entering, write down: reason, entry, stop, target, risk in money and lot size. If you cannot complete that list, there is no trade. Afterwards, record the result in a journal to learn from it.